Time to wait while market volatility plays out

With Russian markets being buffeted in volatile trade over the last week, Business RT spoke with Roland Nash, Chief Investment Strategist at Verno Capital, about the factors at play, and of the outlook.

­RT:  How would you describe sentiment on the Russian markets after the yoyo experience of the last couple of weeks?

RN:“Well, it’s crazy out there at the moment. The markets are really trading on fear right now, as much as anything else.  Everybody is watching everybody else and trying to work out what is going to happen next.  And obviously that is very difficult with the volatility that we are seeing right now.” 

RT:  So it is not panic, it is fear now?

RN: “It is not panic yet, and that in a way is part of the problem, because the markets are still trying to gauge whether it’s the first stage in what could be a multi stage downturn, or is this just a correction – a big nasty correction.”

RT:  How do you see tomorrow panning out or are educated guesses impossible in these conditions?

RN:  “You tell me what is going to happen in the US or whether a European bank is going to be in trouble or not.  I mean that is really what Russia, and every other market, is currently trading on. It is a very difficult judgement to make.”

RT:  It does really correlate anymore.  The last week in the US has seen two positive sessions at least.  For Russia Thursday was the first one.

RN:“That’s true but the trend for markets in general over the last two weeks or so, has really been in a big downtrend.  People have been selling Russia, as much because it has been outperforming since the beginning of the year, and people are selling assets that still have not demonstrated the downturn on the markets.”

RT:  What needs to happen before everyone can say the fear is over and return to buying?

RN: “I wish you could tell me the answer to that question.  I don’t think there is any sort of one thing that people are looking for.  I would guess that right now the world is hoping for some sort of coordinated effort from the monetary authorities in both Europe and the US, to try and address these kinds of issues.  Perhaps if there is one thing which could kind of draw a line under everything, it’s the European Union finally admitting that there needs to be some kind of fiscal union in Europe.”

RT:  So even if Barrack Obama comes out and announces a plan to totally cut the US budget deficit and comply with all the requirements of Standard and Poor’s and Moody’s and get the credit rating back to AAA, this wont help?

RN:  “It is not really about the credit rating and that’s a catalyst perhaps but a credit rating, credit rating agencies, don’t lead markets, they never have.  They react to markets, including the downgrade from S&P.  and if Barrack Obama could come out and say something like that, then he would be in a much stronger position than he is right now.”

RT:  What does the investor do in these conditions?

RN: “I can tell you what we are doing and what sensible funds should be doing and traders should be doing – and that’s just getting out of the way.  What you don’t try and do is step into this, and catch the proverbial falling knife. That’s a way that you can end up with blood all over you.  So I think that it’s sensible that, at the moment, just to stand out of the way and wait for things to calm down a little bit.  Right now there is a lot of value in the Russian market, so there is going to be a time when you can make a very good return in Russia as a result of this downturn.”

RT:  Another question, Russia has been promoting the privatization programme for such a long time, so it will be selling a lot of state assets.  If we do not see the levels that we saw two weeks ago on the markets, are they going to sell at these prices?

RN: “I would have to say that in the current environment that it is going to be nearly impossible to sell any assets to anybody, whether it is the Russian government or anybody else.  So if it continues like this I think the privatization will be postponed.”